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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Financial leverage

Costco Wholesale Corporation (COST) and Wel-Mart Stroes Inc. (WMT)reported the following data (in milllions) for a recent year:

Comment on the results of 1, 2, and 3.

To determine

Concept Introduction:

DuPont analysis is an Analysis to examine the Return of Equity (ROE) of a company by various means which includes Profit margin, Asset turnover and financial leverage.

To Indicate:

The Comparison of performances of both companies

Explanation

Profit margin, Assets turnover, Financial Leverage, and Return on Investment are calculated as follows:

    CostcoWal-Mart
    Operating Income (A) $ 2,377 $ 15,080
    Sales (B) $ 116,199 $ 482,130
    Profit Margin (C) = A/B = 2.05%3.13%
    Sales (D) $ 116,199 $ 482,130
    Average Total Assets (E) $ 33,232 $ 201,536
    Asset Turnover Ratio (F)= (D/E) = 3...

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